Asian currencies winning over fund managers

• Nov 30, 2018

MUMBAI: Global investors are already warming to emerging-market Asian currencies – all they want now is a positive sign on trade from Presidents Xi Jinping and Donald Trump.

Slumping oil prices, pro-active central banks and lowered expectations for Federal Reserve rate hikes have renewed the appeal of one of the year’s most beaten down asset classes, according to conversations with fund managers including Amundi SA and Nikko Asset Management Co.

A de-escalation of the trade war would set the stage for a sustained Asian FX recovery, they said.

“We have turned more positive on Asian currencies following encouraging signs that both the United States and China were willing to talk at the upcoming G-20 summit,” said Delphine Arrighi, an emerging market fund manager at Merian Global Investors in London.

“We think that this trend can continue if we see a de-escalation of the trade war tensions.”

Though still down 5% this year, the Bloomberg JPMorgan Asia Dollar Index has eked out a more than 1% gain in November, thanks to a rebound in its worst performers as global funds start to return to Indonesia, India and the Philippines.

The rupiah and the rupee led a surge in emerging market currencies yesterday after Federal Reserve chairman Jerome Powell opened the door for a potential pullback in interest-rate hikes for 2019.

Here are some of the bullish signals fund managers are pointing to that could help this burgeoning recovery continue.

A growing debate over the likelihood of a Federal Reserve rate-hike pause has traders dialing back their interest-rate expectations, which should bring some relief to Asia’s currency markets.

Fed chairman Jerome Powell said on Wednesday in New York that interest rates are “just below” the so-called neutral range, spurring speculation central bankers are increasingly open to pausing.

“One important reason that led to EM currencies depreciating substantially this year was the firm rate hike path the Fed embarked on,” said Edward Ng, a fixed-income portfolio manager at Nikko Asset Management in Singapore. A slowing global economy and possible inflation peak which could cause the Fed to moderate the tightening momentum may be the key supporting factor for the currencies in the near term, he added.

An end to the recent rally in the greenback and an easing of the downward pressure on China’s yuan would also help regional Asian currencies consolidate their recent gains, the fund managers said. Citigroup Inc, Goldman Sachs Group Inc and Morgan Stanley are among global banks calling for dollar weakness in 2019. — Bloomberg

Source: https://www.thestar.com.my/business/business-news/2018/11/30/asian-currencies-winning-over-fund-managers/#P5ywQvQ2AyW1XXHr.99